When investors are scouting out new opportunities, one topic that’s popping up more frequently at the due diligence phase is the topic of global growth. After all, expanding beyond borders is one major way to fuel a company’s growth. How soon a company goes global in the life of their business can dramatically shape their trajectory. With more companies growing across borders earlier than ever before, the need for investors to explore this area is on the rise, sometimes even as early as the seed-round investment stage. What follows are some simple questions any investor can use to gain valuable insight into a growing business and their global potential.
1. Where do you have customers today?
I’m always curious as to how leaders of start-ups will answer this question. The less internationally-minded they are, the more they’ll tend to speak in broad terms both geographically and monetarily. You might hear them say for example, “We’re mostly US-focused, but we have some business in Europe.” While that’s not a terrible answer, what I’m looking for are specifics. Europe is a big place. How much revenue or how many customers exactly (depending on size and stage of company) and from which countries?
What I care about when I hear the answer to this question isn’t really the mix or the percentage. It’s how much the founder / leader cares about international. Do they dismiss the question or regard it as not very important? Do their eyes light up when they talk about it? Are they specific or vague? Do they display any passion for achieving global reach? Are they thinking big enough to carry the business across borders in the long term? Or do they seem daunted by the question? This tells me a lot about how eager they’ll be, and probably how successful they’ll be, when they approach international markets, whether that’s sooner or later on in the life of the company.
2. What’s the domestic vs. international split?
Ask the previous question first, to get a sense of a start-up founder or leader’s general attitude toward global growth. If they fail to give a split in their answer, you can ask this question to get more specifics from them. You don’t need to specify what you mean by “split” when you ask. I’m always curious as to how they’ll answer this question in terms of how they’re thinking about the business and their plan for growth. Do they answer in terms of revenue split? Install base distribution? Customer count? User count? Sales team allocation? Marketing budget?
A more advanced answer (and generally a promising sign) is when they say something like, “The US accounts for 70% of our revenue. The rest is a mix, with Canada making up roughly half of that other 30%. The majority of the rest comes from English-speaking countries like the UK and Australia. We’re only marketing in English today.” An even more advanced answer is when they can give a percentage split for both customer count and revenue. Ideally, they lead with those more top-line metrics, not their employee distribution, sales headcount breakdown or marketing budget by geography, which might be an indication they’re thinking about it from the bottom up versus the top down.
3. Who on the team has international experience?
This is another important one. Ideally, the founder / leader will volunteer that they do, which is a big check in the box for global growth potential. But if not, they hopefully at least have self-awareness, and have the ability to point to people on their team who do. If they can easily answer this question, it tells me they have global ambitions and have already thought of this before. If they don’t, they might later be hindered by their inability to outside their home market. There are many variables at play of course, but generally, founders with a bigger, stronger vision tend to think beyond just one country.
Also, a simple and honest answer of, “I haven’t hired with that in mind yet, but I intend to” tells me a lot. It says they are open to the feedback, but also honest and willing to admit when they don’t have everything figured out. That level of humility is critical for success in international markets, and it’s quite rare. Openness to learning is a must, but especially for companies that seek both global and local success.
4. What is your plan for international growth?
When start-up leaders have thought about this question already, and have a thoughtful answer, great. But it’s also great when they haven’t and are willing to admit it. The transparency and openness is often a good sign of how they’ll operate with investors going forward — and not just on questions of international business, but the business in general. Saying, “We’re not there quite yet” is just fine!
Investors, be forewarned that if you ask this question, and the company doesn’t have a plan for this yet, many well-meaning CEOs and founders will run scrambling the minute the door closes on the meeting, asking their team to hustle and figure out the international growth plan ASAP. Often, they think they should have one just because they were asked about one. This often leads them to frantically look for an international consultant. They’re eager to please and fill what they perceive as a gap.
When start-ups in this scenario come knocking on my door, I often tell them some good news. In many cases, they don’t need an international strategy (yet). It’s totally OK not to have a plan for international growth, especially when a company is still figuring out product-market fit in their home market. Going into too many markets too early can cause chaos and too much complexity before a start-up is ready for it. So, instead of leaving a consultation with me carrying an international growth strategy out the door, they often leave with a big weight off their shoulders. Investors can do them a favor by first listening to their answer, but then importantly reminding them, “It’s totally fine not to have a plan yet; I was just curious.”
One of my favorite answers often comes from founders/CEOs who are a bit more seasoned, and especially ones that have ample international experience. They might say something like, “Actually, we’re staying focused on other growth paths. Right now, international growth is an intentional omission.” I love this answer, because it shows they have some solid strategic muscle. It’s one that Brian Halligan gave in this article at Harvard Business Review. As he describes, in the early years at HubSpot, he knew how much international opportunity awaited. But he made an intentional choice to deprioritize it in favor of focusing on other things instead. It takes conviction, patience, and strong will to say “no” to the pull of international markets.
5. How does the Global TAM break down?
Nearly every pitch deck I’ve ever seen for potential investors has a slide with an estimate of Global TAM (total addressable market). Very rarely do founders break it down any further than that. It’s great when the CEO can at least tell you what percentage of TAM is derived from their home market. It’s even better when they say things like, “We’re only in the US right now, which is 43% of the global TAM today, so the opportunity we address today is US$5.2 billion. Our domestic market is projected to grow at a CAGR of 24%, while outside the US, the market is growing at 18% on average across all other countries. This is why we’re focusing mainly on the fastest-growing market right now.”
In fairness, some founders might be building a product so disruptive that their TAM estimates are basically a shot in the dark, a guesstimate at best. They might not have the ability to do any geo-specific breakdowns. But I like to ask the question even so, because it can prompt them to at least learn how much of the Global TAM their current geographic focus opens up.
Save Specific Recommendations for Later
One thing I’ve often seen happen with founder-CEOs is that after meeting with potential or current investors who’ve asked an innocent question, such as “Have you thought about opening up an office in India?” the founder and her or his team will take this not as a question, but more like an edict. (This happens with many things investors ask about, not just topics related to international!) Make sure when you’re talking with portfolio companies, or potential investment targets, that you don’t give them advice that might be misinterpreted as a mandate to focus on specific countries.
Investors often do this to be helpful, citing another portfolio company in the vein of, “ABC Software had really great results in Brazil, you should talk to their CEO.” This can lead to what I call a “hyper-reactive founder” to talk to that company, take copious notes, and attempt to abruptly mirror another company’s strategy, simply to please investors. A more seasoned founder or CEO will generally take the call, listen with openness and curiosity, and then evaluate whether or not this might be information that is in any way applicable to their business, which is bound to have many differences.
Country strategy is always highly company-specific. There are no shortcuts, such as simply going after the largest economies in order of GDP for example, or going after the “easiest” markets either. I don’t typically advise companies to just follow the same geographic pattern as the market leader or their top competitor either.
Local customer needs can vary hugely, and product-market fit typically happens one country at a time for most businesses. The strategy that’s right for one company is not right for the next, often even if they are competing in the same industry. So if you’re an investor, be mindful that your words can easily steer companies off course. While it’s great to encourage founders and other business leaders to think about international markets, it’s not the best path for every single company at every stage. So, avoid directing your current or would-be portfolio companies to specific countries before they are ready.
In summary, while the exact perfect timing to lean into international growth depends hugely on the type of company and where they’re at in their market, the questions above can prove really useful for investors to gain a sense of how a founder-CEO is thinking about her or his company’s global future. It can also give you a sense of the expansiveness of their vision for the company (or the lack thereof).